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2022 (9) TMI 1481 - NATIONAL FINANCIAL REPORTING AUTHORITYProfessional Misconduct - Failure to Report Lapses in Accounting of Interest Costs pertaining to Borrowings classified as NPAs - Other Lapses in conduct of Audit - overstatement of profits by the company. Non-compliance with the Standards - HELD THAT:- On the issue of non-compliance with the SAs and professional misconduct, the EPs replies are listed at paras 8.2 and 8.8. The reply at Para 8.8 is particularly interesting where he states that the job of an auditor must be judged on the basis of outputs and not on the quality of notings made. He goes on to say that civil servants and judiciary are given appropriate immunity under the law where decisions are made in good faith - The analogy made by the EP in his reply at para 8.8 is misplaced and out of context. The output of his work is the moot point in question. The output required of an auditor of a Public Interest Entity (PIE), is absent and the same has been pointed out in the context of SAs. But the attitude of the EP is to vehemently deny all the charges on the plea of him having taken audit decisions based on discussions which are neither recorded nor evidenced. Non-recognition of interest costs on Borrowings classified as NPAs - HELD THAT:- The EP has overlooked this important lapse in the accounts of the company, which has resulted not merely in understating the costs, but also overstating the profits of the company and thereby misstating financial statements of the company, which do not reflect true and fair view of financial statement as required by Section 129 of CA-13. But attitude of the EP is not that of accepting this mistake, but of flatly denying all charges on grounds which show that he has no understanding of the Ind AS or the SAs, which is fundamental for any auditor specially those auditing PIE. Lapses in Audit Documentation - HELD THAT:- The EP believes that there was no reason to maintain audit evidence and documentation on material issues and therefore based his opinion merely on discussions with the management. This cavalier and irresponsible attitude is alarming and shows the EP's lack of knowledge of the Standards and Procedures. This approach and attitude of EP militates against the fundamental objectives of SA 230, para 10 of which requires an auditor to document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place. Non-appointment of EQCR - HELD THAT:- VWL is a listed entity and thus it was mandatory for the auditor of VWL to engage an EQCR partner for review of the audit work. Penalty - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which the Companies Act views proved cases of professional misconduct is evident from the fact that a minimum punishment is laid down by the law. While determining the penalty in this case, several factors have been considered. In light of the proved professional misconduct by CA Som Prakash Aggarwal, the aggravating circumstances of such conduct, the nature of violations and applying the principles of proportionality, the following sanctions under Section 132(4)(c) of the Companies Act, 2013 issued: (i) Imposition of a monetary penalty of Rs. 3,00,000 (Three Lakhs only) upon CA Som Prakash Aggarwal. (ii) CA Som Prakash Aggarwal is debarred for three years from being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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